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Technology Stocks : Entrust Technologies Inc (ENTU) -- Ignore unavailable to you. Want to Upgrade?

To: Bill McEachern who wrote (668)	7/7/2000 7:20:50 PM
From: brad greene	Respond to of 1205

VRSN vs. ENTU Bill, Often...the filing of the first class action suit is the time to buy....as all of the bad news is out. bg.......Interesting reading: Entrust's Collapse Unwarranted, Better Long-Term Prospects Than Verisign Toronto, ONT, July 6 /SHfn/ -- Entrust Technologies' [ENTU] share price collapse on Wednesday brings its market capitalization to less than one-eighth that of its rival Verisign [VRSN]. This is too great a difference, given that both companies are strong competitors in the public key infrastructure (PKI) encryption/security software field and one is not greatly ahead of the other. Entrust's shares fell 52% to US$36-11/16 at the July 5 close after the software company issued a profit warning. The stock recovered slightly on Thursday. Entrust is forecasting earnings per share (EPS) of US$0.02 for its second quarter ended June 30. The consensus estimate was for $0.08 EPS. The company's shares have a 52-week trading high and low of $150 and $18-5/16, respectively. A rebound in Entrust's share price over the course of the year is a strong possibility. The company's share price drop presents a possible buying opportunity. Entrust's product-line, revenues, profitability and growth potential are comparable to that of the PKI market capitalization leader, Verisign. Furthermore, Entrust's profit warning is related to short-term delays in closing sales. Sales forecast to close in the company's second quarter will instead show-up in next quarter's results. CEO John Ryan said: "The issue here is simply revenue timing, not lost business." A rebound in Entrust's share price over the course of the year is a strong possibility. Texas-based Entrust (which is one-third owned by Nortel Networks [NT] / [T.NT] and has operations in Canada) and California archrival Verisign are leading PKI vendors (see previous PKI article). Public key encryption is regarded as the solution for securing e-commerce transactions. In layman's terms, both sender and receiver of a message transmission have a shared "public" key, but each also has a private key, which is not shared. Conventional (or private key) encryption uses one shared key to decrypt message transmissions. The unshared key in public key encryption creates much higher security levels. The keys are delivered in the form of "digital certificate" computer IDs. The stock market generally favors Verisign over Entrust, in part because its revenues are more predictable. Verisign sells its software as a service/hosting package, with digital certificate delivery coming from its own computer center. This selling approach generates fairly predictable service and subscription revenues from Verisign's B2C client base. In contrast, Entrust sells its software as software, which clients manage themselves for internal or B2B purposes. Revenues for Entrust come in a lump, when it closes a sale. Although neither companies' PKI technology is perceived to be better than the other's, Verisign's selling approach is more popular with B2C companies. B2C companies are currently the largest component of the PKI market. The internal usage and B2B selling that Entrust is focused on, however, is considered to represent a bigger, long-term opportunity by most market research firms. Both companies are hedging their bets by moving into the other's niche. Each company is scoring significant contract wins, with nothing to indicate that one is gaining a long-term advantage over the other. On Entrust's side, high profile deals have recently been signed with Amazon.com [AMZN], Ariba [ARBA], Oracle [ORCL] and Sun Microsystems [SUNW]. Entrust, however, is profitable--Verisign is not. For its part, Verisign appears to be in the better position for short-term revenues growth. Its Q1 2000 revenues were $34 million versus $29 million for Entrust (both quarters ended March 31). Entrust's management expects its Q2 2000 revenues to show little growth over Q1, so Verisign is likely to pull further ahead. Entrust, however, is profitable--Verisign is not. In fact, the consensus estimate of $0.02 for Verisign's fiscal 2000 EPS is what Entrust expects for its second quarter alone - even after its earnings warning. Entrust is also likely to have Q3 results that are loaded-up with sales originally forecast to close in Q2. Oracle had the same poor quarter-to-quarter revenues predictability problem when its revenues were based primarily on database sales. Like Oracle at the time, Entrust should be judged on full-year rather than quarter-to-quarter growth. Entrust's big deals will produce revenues, maybe not in Q2, but definitely within the fiscal year. Verisign has higher revenues, but lower margins, because it sells its software as part of a service/hosting package. Providing the service/hosting raises Verisign's costs. Entrust's shares seem to have more long-term appreciation potential and less risk than Verisign's. Developing companies with great technology like Entrust and Verisign are initially valued for their revenues growth. It seems logical that Verisign's better revenues growth should give it a higher current market capitalization. But the difference after the July 5 downturn in Entrust's share price is too high: $19.2 billion for Verisign versus $2.0 billion for Entrust. The companies have equivalent technology and are moving to sell into exactly the same areas of the forecast multi-billion dollar PKI market. The difference in market capitalization will likely narrow over time. Having taken a big hit and trading at much lower multiples, while maintaining equivalent long-term potential, Entrust's shares seem to have more long-term appreciation potential and less risk than Verisign's.